FORT COLLINS, Colo., Jan 5 (Reuters) – Most market participants are well aware that a La Nina weather pattern often spells risk for South American corn and soybeans, though things had been going relatively well several weeks back and concerns were very mild.
In fact, decent November rains in Argentina weighed down Chicago futures at that time as traders assumed La Nina was overhyped. Pre-planting soil moisture in both Argentina and southern Brazil were better than in the previous year, which also featured a moderately strong La Nina.
But La Nina, which occurs when the equatorial Pacific surface waters are cooler than normal, should never be dismissed, especially so early. Dryness has set in for southern Brazil and Argentina and conditions have taken a dramatic turn in the last couple of weeks.
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The situation in Parana, Brazil’s No. 3 soybean state, is perhaps most alarming. Only 30% of the crop is considered in good shape this week, down from 57% two weeks prior and 92% four weeks prior. Some 31% of the soybeans are in bad shape.
Parana’s soybean crop has never been rated anywhere near this poorly during this week in recent years. The worst early January ratings were 58% good and 12% bad in 2019, and the second-worst was last year at 79% good and 3% bad. Most other years were 88% good or higher.
Some 80% of Parana’s soybeans are either flowering, setting pods or filling pods, so rain is imminently needed. Some showers are expected in a few days, but Wednesday’s forecasts were drier than in previous days.
Farther south in Rio Grande do Sul, Brazil’s No. 2 soybean grower, the forecast is much less promising. Warm temperatures are predicted into mid-month and the only substantial rain in sight is at least 10 days out, though forecasts are less reliable in that time frame. Less than 50% of average rainfall has fallen in the last two months.
To the northwest of Parana, Mato Grosso do Sul’s agriculture federation reported this week that rainfall in the state’s crop-heavy southern regions was 25-50% of normal last month, and the situation remains “critical.” Mid-December data showed 91% of the state’s soybeans in good condition, but southwestern divisions were closer to 70%.
Just southwest of Mato Grosso do Sul, Paraguay’s drought is so severe that the government on Wednesday announced relief measures for affected farmers, including tax cuts. read more Paraguay is the fourth-largest soybean exporter and harvest should begin in less than a month.
ANOTHER ARGENTINA SHORTFALL?
La Nina does not guarantee a poor soybean crop for Argentina, but most of the country’s driest years – and worst yields – coincided with a La Nina cycle. Analysts have noted the drastic change toward dry weather in the country, and farmers there have not yet wrapped on planting. read more
Last year’s La Nina limited Argentina’s soybean yields, though it was not a disastrous harvest as was observed in 2017-18, also a La Nina season. Current conditions are better than a year ago, but they are on the downtrend.
According to Argentina’s Bolsa de Cereales Dec. 30 report, some 56% of the soybeans were considered good or excellent, down from 71% in the prior week but well above the year-ago 36%. Poor and very poor ratings increased to 8%, identical to last year, up from 3% a week earlier.
Moisture conditions are about the same year-on-year. Bolsa de Cereales shows 69% of the area as having favorable moisture, down from 80% the week before but close to the year-ago 67%. Argentina’s most critical yield period is during February and March, but the next ten days are forecast as hot and dry, and crops could become even more vulnerable.
The holidays may have caused market-watchers to miss the fact that China in the week ended Dec. 23 bought its smallest 2021-22 U.S. soybean volume since July. That is not too surprising since most consider the U.S. sales window to China “closed” as Brazil has already begun harvesting.
However, the window might not be sealed pending Brazil’s southern losses, but any U.S. opportunity to China or other buyers may not be immediate.
Mato Grosso, Brazil’s top soybean state, has already begun harvest. Planting was efficient this year and weather was largely favorable. Big yields are expected, and the crop might be better than previously expected, which could partially offset shortfalls elsewhere.
Three of every four Brazilian soybean cargoes end up on Chinese shores, though only about 60% of Mato Grosso’s soybean exports head to the Asian country. In contrast, at least 90% of Parana’s and Rio Grande do Sul’s shipments are often China-bound.
Mato Grosso’s heaviest shipping month is March, while Parana is most active in April and Rio Grande do Sul in May. Argentina is on a similar schedule as Rio Grande do Sul, and although soy product exports are the country’s top focus, China is its largest customer for raw beans.
U.S. exporters in some recent years have sold in excess of 2 million or 3 million tonnes of soybeans to China in the second half of the marketing year, though business with other buyers can also increase during this time if trouble persists in South America.
Karen Braun is a market analyst for Reuters. Views expressed above are her own.
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Editing by Matthew Lewis
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